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Case Fourteen Pantaloon Retail (India) Ltd.
Fighting For New Space As Global Competition Comes Home
Arun Kumar Jain I

Affiliate professor of Strategy, IB and Corporate Governance, EM Strasbourg School of Business (FranCe) and Nidhi Jain, Research Associate CALIC - Germany
Retail is one oflndi<i's,fastest growing industries. It is growing at 9% per annum in value terms which is beaten by only Indonesia in the world. _ India presents a retail market of over USS 300 billIon by 2016. The industry is highly fragmented presently, with organized retail accounting for only 3% of the retail market in value terms. However, this is expected to go up to 20% in the next 3 years. Until 200t, retIDl had been largely unorgati• ized. With sustained economic growth and easing regularization: the country witnessed increased consumerism, giving a boost to the organized retail seCtor which has clocked astounding growth rates (49% in 2006) over the past 4 years. Thus. Retail presents an enonnous growth opportunity in the coming few years which explains why do--. mestic heavyweights like Reliance, Bharti, AVB Group, etc as well as global giants like Wal~Mart. Teseo, Carrefour etC. are announcing forays into the sector. As the industry .landseape gets fiercely competitive, there is a lot of uncertainty about how the sector would shape up in future; a lot of it depends on how the players are able to exploit this opportunity "andimplement right strategies to win the race.


ass 'The case is p,ep,,9d only fo' ciassmom diSCUssion P",poses and nollo .,ilieila Iha p,oc of admin;sl,.we decision.making or actual decisions at the company. Copyright Arun Kumar Jain@2009.

ioo. translating into 882 million pairs of hands by year 2020. Pantaloon (PRJL) is attempting to create a dominant presence in every retail format and every product category for every kind of consumer and be present everywhere in India. the company operates through 3.Pantaloon Retail (India) Ltd . rising hrign exchange reserves of close to US$ 250 bit. of jobs in the services sectQr and translated iotD imttased personal disposable incomes. Kishore Biyani to manufacture and sell trousers for men using Pantaloons as the brand name and christened as Manz Wear Pvt Ltd. the Government estimating FDI flow of US$ 12 billion in next 2-3 fiscal years and a more than 35 ptt rent surge in exports. The company owns and manages multiple retail formats catering to a wide cross-section of the Indian society and its width and depth of merchandise helps it capture abnost the entire consumption basket of the Indian consumer.IU.5 million square feet of retail space and has over 100+ stores in 30+ cities in India. bringing all its businesses under the Future Group. With positive indicators -=It 2S a stable 8-9 per cent annual growth. The name was again changed to Pantaloon Retail (India) Ltd. The image of organized retail goes hand-in.In 2006 it opted for a new identity. to reflect more closely to its core l?usiness: 200 1 was the year to venture into the hypennarket sector by setting up its Big Bazaar hypennarket in Kolkata. ENVIRONMENT FOR RETAIL IN INDIA Population projections of th~ PlaJUlingCommission of India suggest that the share of the working age population (15-64 years) in total population wilt grow from the current 59 per cent to about 65 per cent. Headquartered in ~mnbai. The urban population is expected to rise from 28 per cent to 40 per cent oftotal population by 2020. Pantaloon Retail India Ltd (pRJL) is India's first big country-wide retailer. India is likely to be a biiog destination for foreign investment. In 1992 it went public and changed its name to Pantaloon Fashions (India).Products & Services are shown in Exhibit I. In 1987 it \\1\5 established by Mr. The boom in economy has resulted in creation. Future growth is likely to be concentrated in and around 60 to 70 large cities having a population of .. PR. According to the Vision 2020 document of the Planning Conunission of India. the country will witness continued urbanization.hand with nueased westernization of Indian culture and a ~ shopping experience becoming one of the fuctors in the consumer's psyche.. C-229 Exhibit 1 PRIL's Lines of Business - FoOO IJEB:s & MusK: -Beauty aaAltlSS I india'S economy is on the fulcrum of an ever •••• e:asiug growth curve.

On an average. Pantaloon with a market share of 0.25% market share in 2006. representing huge consumption spending.C-230 Crafting and Executing Strategy one million or more. Pantaloo~ follows a prudent mix of Lifestyle and Value Retailing. tion in the retail sector allowing 51 per cent POI in . the Government also proposes further liberaliza. Now. consumer electronics and sports goods.g highly fragmented at the moment. At present PRIL is the market leader in the organized retail segment in India. 30-40 million people are joining the middle class every year. the franchise route is available for big operators. This profile of concentrated urbanpopularion .25% is the market leader and is way ahead of the other competitors (Exhibit 4). Besides. it had 0.will facilitate multiple-format offerings by companies in the organized retail in~ dustry. Exhibit 3 _ _ Vah •• RtfailiDg Same S1Ol'eGrowth Lifo:stylc Rctailin. SlUDC'SlOrC Growth SO'. accounts for less than 2% of the total retailing value sales. the retail industry with the top 25 players. In retail value sales. Where firms like Shoppers' Stop operate in Lifestyle Retailing only. well ahead of the second placed LG Electronics. 40% 30% . The Government regulations allow 100 per cent POI in cash and carry through automatic route and 51 per cent in single brand. Exhibit 2 Competitive Position 2006 SouI'C'6: Euromonilor International from trade press Existing Retail Players in India ---Beii:l. Pantaloon Retail India ltd also had the most expansive spread in terms of presence across different fonnats and/or channels (See Annexure I and 2).

it will first eat up into Pantaloon's market share (Exhibit 5).bip in India has been in favour of sup. reseo Carrefour. For example. expected to enter as and when the government pOlicy eases FOr in t Retail Wal-Mart has already collaborated with Bhatti to open a chain of stores. Exhibit 4 Retailing Company Shares (% Value 2004-00) Pantaloon Retail (India) ltd. the industry is growing and at the same time the market is expanding. Pantaloon is placed comfortably in the retail market vis-a-vis the existing players. pliers. lion sells more P&G Products than the entire sales of the finn in Japan. But the emergence of organized retail has tilted power in favor of retailers. when a new play_ er like Reliance Retail (RR) enters the industry. The threat of the new entrants poses (he biggest challenge to Pantaloon. A comparison between Pantaloon and Reli_ ance Retail reveals the kind of competition Pantaloon will be 'up against within the next two years (Exhibit 5-6). ':" C~2J I Source: Euromanilor International Irom trade press. largely be~ cause of the scale and the multiple fannars that it O~rates in. .i •. AI. RR has been expanding rapidly and then there -are other big players such as WalMan. though. Traditionally.. This is wba[ gives W~I-Mart Exhibit 5 Pantaloon Vs Reliance . a retailer like Wal-Mari with sales of Over$350 bil. the buyer-supplier relatioru.

i 6. "::'-.ofSlores (x 100) Employcoe Strength (in lalr.. 6.3 ~. In India. Marico.2 1 Source: Official estlmales statislics.. Changing Profile of Indian Customers Indian economy has been growing at a healthy rate . 8 4 2 o • Investment OuIlay ('000 Cr) Targe! Turnover by 2010 (0000 Cr) No.1.'. .536.~ 7...4 .824.+ '£ " .1 !: 6..~}. Euromonilor 212 . for the last few years.~. Tra<kt interviews. Company research. . it asked suppliers like P&G. the supplier bargaining power will further diminish. With more big players commg into the sector. Pantaloon has been able to do the same by achieving the size and the scale. ~5. to reduce prices by 5% in its stores. Trade associalions.':~ 31i t- . 2.C-232 Crafting and Executing. This has led to the emergence of a new urban class. Not long ago..360.2 .'lIindiaaidcshQw. .b) D Reliance retail • PantalOOTl ail m Source: Retailing Fast Forward: http.392.::.hrm its teeth and enables it to dictate terms to its!74.3r . 3. InternaliOOal Trade press.Strategy Exhibit 6 18 16 Pantaloon Vs Reliance I' 12 10 . The profile of the Indian shoppers has been changing over the Exhibit 7 Sales in Retailing by'Sector (Rs bn): Value 2001-2006 . etc. ' .

QPI)ortunit)in rl'ld~ and" diYldedin[Qsomekeycat~1ed by food. While political compulsions have kept 1000/0 FDI away. '. The customers today are more aware and they are dictating the terms at the retail stores. . . This segment would comprise the Non~store~ based Retailers . Bhatti and Aditya BirJa Retail among the domestic players and the likes ofWal-Mart.Pantaloon Retail (India) Ltd.. this qux:nt is very small at present (see Exhibit 7). This might lead to a consolidation of the retail industry. Wal-Mart haS announced its entry through a tie-up with Bhatti and Woolworth has entered into a N . Exhibit 8 Size of Market in Different Categories fu India The 5350 billion Con~umptior6penchngthe$lngle bi!l':lWbusllll'» . global giants have taken the N' route. Pantaloon would need to either match them in scale or foUowa strategy where it vo'Ould position itself as a niche player.-n Futnre Prospects for Pantaloon Based on the above analysis. Tesco. The disposable income in this segment has been increasing at a fast pace.who pose the greatest challenge to Pantaloon. the short term prospects of Pantaloon would not be affected as the existing players do not pose a significant threat to it. But it is the new entrants like Reliance Retail. lUltapped. firms like Reliance and Pantaloon are trying to acquire smaller but well established brands like Subhiksha and Nilgiris. In value terms. into tier II 'and tier III cities where the customer base is largely. Most of the Pantaloon's retail fonnats are tu&ening the middle class segment of the iridian society. C-233 years. Also. -. all the retail finDs in India are looking at expansio~ especially.:I does not pose a big threat to the fonnalS in Pantaloon is operating at the moment.and etai/ers. To maintain it's current level of growth and profitability. In view of the opportunities that the industry offers. fashion andno~ P'"oouet .

manufacturer" distributor.Mart's Sam's Club across smaller towns and cities. with the development of organised retail in India. India has millions of small retailers. electronics. with large chains buying consumer goods from most manufacturers. The small size of Indian outlets limits the amount of inventory they can hold. thus requiring frequent replenishment. Also.uP their reach in Segirients like jeWelry~ home solutions. The only way for a manu. with a business-tO"'business (B2B) model similar to that ofWal. Pantaloon Retail is focusing its resources and energies in expanding its chain of retail stores. Indian organized retail is thos'well on track to become aUSD 35bn opportunity on the back of USD25bn of iaveslnlents ~iitedup over the next fot!r yeats. (Le. The main difference between the traditional Indian value chain and the value chain in developed cOWltries is the presence of the distributor (Exhibit 9). In contrast. : ". t}1ecompanies are trying to enhance their supply 'Chain efficienCy. Pantaloon Retail Limited operates bOth in the value ~tailing in4ustry and the lifestyle retailing industry.indialimes. However. airpOrt retailing. catalogue reiailhlg. retailer and the customer. It will increase the number of outlets of Big Bazaar from 50 to 100 by next year.2 The move is part of a strategy to strengthen its back.Companies ~re also experimenting w'ith'different formats in'o!der~.f~rina~ playerS'are F$lpidlyramping . companies'realIze that to remain competitive. For this. retailers have achieved sufficient scale to deal directly with manufacturers.. C-234 Crafting and Executing Suategy with Tatas.value retailing industry traditionally consisted of the following players operating in the value chain-supplier.OOOm 2008 and expand its different retail in chains as a part of a strategy to touch a top line of Rs 3oo.. The . because their cost of collection is significantly lower than the cost of manufacturers collecting directly from retailers. So the current industry level value chain for the organized retail industry in India is (Exhibit 10): Modern. Pantaloon Retail is also chalking out a massive foray into the wholesale agri-eommodities business trade in India.000m by 20JO.tij:~ a I~ger sha:feofth~ co~ers' waneL ~ile . This consolidation gives retailers sufficient scale so that the introduction of an intermediary such as a distributor does little to reduce costs and may actually increase costs because of an additioni\1 transaction.retail formats are trying to build up efficiencies in the sourcing system to cut costs drastically by eliminating the distributor in the system. facturcr to keep transportation costs low is to bring full truckloads of product close to the market and then distribute locally.comiarticteshowf1486521 . Retailing in the United States is largely consolidated.hypqtrij!rkets continue to ~ the key .. Large distributors typically claim a margin of 5-6% and the savings from eliminating the distributor will help lift margins for the retailers. et.I1. Reliance set 10 forayinto wholesale trade' Source: http://economictimes. Distributors in India also handle collections. on the outbound logistics and customer serv.c.ems . ice part of the value chain) It plans to invest about Rs 40. Exhibit 9 Traditional Retail Value Chain 2 'Pantaloon.. beauty and healthcarc.they' will need to bring down the total operation costs.end supply-chain and sourcing capabilities to reduce costs and sharply scale up business volumes. specialty wear.Tesco is also finalizing its N partner.

Wal-Mart has bcen able to provide its customer with the lowest price ti ihaJ:'sthe reason why Reliance. min a sustainable competitive advantage in the re. Supply Chain Efficiency it is difficult to quantify supply chain efficiency as it involves many players and a number of business processes. And to be able to provide quality product at low price. 3% of the revenue as against the industry average Far example. with plans l m e.-vis quality and price. Pantaloon will need to replicate such model to be competitive as Indian customers are highly price sensitive. success of its Big Bazaar chains. a concept which was pioneered by hance its operating efficiency... C-135 Kdn"bit 10 Organized Retail Value Chain Raail is an industry which operates mainly on vis-a.80bn in supply chain is well poised on quality products because of its extremely ef_ dris fronl Working capital efficiencies can be ficient supple chain network. Two points are emphasized here while ~. maximum operating cost to a retail.. This eotails recruiting and training of professionals and prudent use of technology.orid to ensure survivaL Sourcing. It markets most of its products under private labels. This enables Wal-Mart to offer its customers the best price and at the same time earn a bet~'S an advantage over its peers. This enables it to have some control over the cost and quality of its apparel.. Backward integration is all the more important for the Indian retailers because Indian consumers are very much price-sensitive and efficient backward integration helps to cut the cost drastically. las and low cost derived from supply chain ditiucies. This is where supply 1IW-Mart and adopted by other retailers around chain efficiency is as critical as it constitutes the . tail space. It will need to eD. form. Wal-Mart's distribution costs account for .• v.. Pantaloon lndustries--supplying fabric. with its group company. Let us ~aneul: of goods can be a key differentiator and take the example ofWal-Mart. Pantaloon needs to provide the customers with superior value parel business. Salesperson's time spent selling (percentage) • Training hours per employee • Customer re-visits • Cross-selling potential • Point-or-sale service ranking Pantaloon and Reliance higher than the other players• Pantaloon is integrated backwards in the ap- • Customer complaints as a percentage of sales • IT Cost In order to solicit customers away from the convenience of the next door Kirana Store. Shopper's Stop with its IDA software of 6%. storage. This is because one of the most critical success factors in this business is providing a superior shopping experience to the customers."e5t Rs. This partly explains the •.• can be a big source of competitive advantage. According to a 2006 -mired through sophisticated technology and study.1••• KEY PERFORMANCE INDICATORS IN RETAIL Customer service is the most critical area to main. thus offering products that .Pantaloon Retail (India) Ltd. . ter profit margin.

71 .82 91.13 11." . ' o 1. -.89 12.-78 .52 196.:~a?:~~i~.89 .19 68.36 .i)4:h~~~ )3'~~~~~:::su~_~?:~.~..49 1.~""'")"-.87 15 10..44 .35 13.11 -.1. ~..32 ~7.08 27.98 6.65 '. 309.36 654..43 628.4 '..085.52 3..960." '.i:.12 7..:.'>('280.63 1.~' 444.73 .07 2.34 Employee Cost In Other Manufacturing Expenses Expenses 112.1 7. 7..52 27_11 328.24 •..31 3.16 0.<~101..33 . .. 16.14 o 24.78 • 968 1.' .88 14724 34.•. 427.08 10. 38.94'.05 19..16 16.4. ' 1.33 57.01 38.7 19....72 Dividend Equity Dividend % Earnings Per Share-Unrt Curr 5.~~ti6:~~~~~_qua. .41 --0.76 • 1. 'Adjustments Total Income '2$4.41 1. " .5 25 17.83~ 467.71 20. 0..55 0.89 2. below Net Profit o 66.28 • "J. 213.::" .19 .41 158..06 99... INCOME: Sales Turnover Excise Duty .".on try .76 o '7.. 19.02 19. . " 6. 441. 29..58.75 4..2 8.on Interest Gross Profit Depl'ecialion Profrt Before Tax Tax "" ny OD- Deferred Tax Reported Extraordinary Adjusted Net Profit Items 10..58 37.39 33. 9 Stad<.084. C-231 apand llil- Annexure }. ~'.12 66.. _ 28?.. 116.' 685.73 63...22 ..219.82 4.1 .95..05 P & l Balance brought forward Appropriations P & L Balance carried down 15..41 EXPENDITURE: Raw Materials Power & Fuel Cosl 1.76 5.124.92 321.26 285. '...51 o 34.35 39.. 4..:LTh. .8 3.51 14..82 10 34.-.85.' 828 21..33 53.97 ..09 1.2 Net sales Other Income 1.83 3.•~ 23.-.92 "' .56 7.08 64.43 SO.:9S .. ~or the Selling and Administration Miscellaneous Expenses 88.99 5.a-:.91 .53 0.• .~".17 99. Income Statement (Rs in Crore) ish- - f..25 o 24.03 .1S'" 2.41 ..22 11...59 6.08 2." .97 12.64-12.45 13.200.41 19...95 4672 12.08 o 38. SS.960.....23.13 Book Value-Unit CUrT Source: CapitalirlEt Plus.79 24. - tail Total Expenditure Operating Profit .Pantaloon Retail (India) Ltd. 49.• '.15 . '.82 37.12 24.97 39.29 .73 '.43~ . 127...477..t:~~r.64 28..56 Net Profit of on ~c Adjst.' 658.85 94.4 0. 23.53 112.. .69 1. "-:.59 24.02 o o 6. .25 25 23..5..58 .95 "1.87 54. ...87 64.39 19.86 f4.76 2. .82 J9.4. '.:~ ..

Vishal • Music. sells garments. Pan• Electrical and Electronics taloon is a multi-fonnat retail chain. replenishments are done twice a day. ings. • Pantaloon is in talks to form N with Burger King of USA to open fast food restaurants in Q. parel range would consist of shirts. has a factory in Gurgaon. This factory has more than 700 im~ • Personal Care and Baby Care Products ported machines that have a capacity to manu~ • Home Care Products facture ISOOOO pieces a month. trousers and owing to an absence of advertising and other T-shirts. • Food items Haryana. on this map. • Reliance Retail has roped in Celebrity Fashion choices for the company? to manufacture economy range of men's cloth . the model where. The apcost 20-25 percent lower than branded items.''': in what way? What could be the strate.lndia Food Solutions Pvt. Pan . • Vishal Retail Ltd. some additional information is incorporated Case Guideline Questions whi~~. 80000 square feet of covered space. 3 Draw a strategic group map for retail indust focused on the key parameters and positil the country. The factory • Office and Home Stationery occupies.Pantaloon Retail would be the master franchise of Burger King in 1Ji.5 What could be the growth objectives ofPa der the brand name "Yatra". The N would be on a franchisee Pantaloon Retail (India) Ltd. a JV comand construct an audit of where the compa: pany between Pantaloon Retail and Blue Foods should focus in the emerging environment is planning to launch a chain of restaurants UD. The funds would help the and how do they differ from each other? company to have 300 beauty and wellness cenQ.ting players. The brand would be exclusively avail.Q. centers. home furnish. able for Reliance Retail outlets. • In Reliance Fresh. foods and household items. I (a) How is the retail industry evolving i • lndivison-a private equity fund promoted by India? Should the players be proactive { Future Capital-a subsidiary of Pantaloon Rereactive to the evolutionary phases ofd: tail has invested Rs. It is also investing in IT infrastructure • Spencer's product range includesfor better inventory management. (India) Ltd. the company plans taloon? In your opinion. Toys and other Entertainment and Spencer'S are going for more than one format.2 Identify critical success factors for Pantalo( tres across India. Ltd. mainly from their own distribution • Vishal Retail Ltd. So. • Apparel and Fashion Accessories But the limitation of this assumption is that. 4 Analyze the company's internal resourc •. Also. beauty different formats? and health finn Vandana Luthra Curls and (b) What are the different fonnats for reta Curves (VLCC). related expenses.C~236 Crafting and Executing Strategy wear under the brand name "Spirit". 500 mn in fitness. the emergence to have a chain of 15 such restaurants across large retailers would affect the Pantalo India. Q.dia.

~ 23.29~. 285.97 . ~-t .C-238 Crafting and Executing Strategy Annexure 2: Key Financials (Rs in Crore) """ 02(121' .

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